Aerospace Leadership “MidTerm Case Study”

Frank Lorenzo has been called many things: a visionary, a dealmaker, a union buster, and a showboat. But to Lorenzo’s subordinates (his own leadership team), he was “a loose cannon”. Often, Lorenzo created as much havoc among his own leadership team as he created among the competition. Two chains of command lead to the top at Texas Air (Lorenzo’s holding company – his “empire”). One was the official hierarchy of managers. The other was a small team of executives with whom Lorenzo felt personally at ease and whom he used for special projects and to gather information. This team was extremely difficult to penetrate and dates from Lorenzo’s early years, when he organized his personal regime of ”bright young entrepreneurs to challenge the US airline industry.” Lorenzo’s Texas Air headquarters was a lean operation with almost no staff, so Lorenzo used his “executive cadre” to perform staff chores – often at the expense of undermining his line managers. According to several former employees, Lorenzo assigned lower-echelon people to projects that their bosses were unaware of – and recommended to them that they not support their superiors’ plans, until (at least) Lorenzo was make well-aware of these plans. Fare changes or route expansions that were in the planning stages for months would be canceled abruptly by Lorenzo – with no explanation. Planes bought for one of the company’s airlines would suddenly be diverted to another of Lorenzo’s airlines. According to one of Lorenzo’s former executive: ”Planning was impossible – You never knew who was on your team, so you were always off balance.”

“Yet, Frank wanted it that way.” While Lorenzo considered himself a good family man, he was hell on his families of subordinates. Fourteen-hour days and six-day weeks were the norm, and executives were often forced to move from city to city. Nevertheless, there was always a lot of loyalty and esprit based on the feeling that Texas Air was on the cutting edge of extraordinary change in the US airline industry. So maybe Frank Lorenzo was not who you wanted to work for – but was he the right “leader” at the right time for Continental Airlines in 1983? In 1983, his uncompromising style had brought about an apparently miraculous turnaround at Continental and set him up as a “shining example” of a business leader willing to fight labor to create a lean and successful airline. Wall Street even celebrated the renewal of a dying breed of tough managers. If Lorenzo had not been in control of Continental back in the 1980s (right after deregulation) – would there be a United/Continental today? It is true that Frank Lorenzo’s notoriety started when he forced Continental into bankruptcy to lower labor costs, and the subsequent formation of the “non-union” New York Air. Perhaps it is understandable why the labor unions would be upset over the New York Air deal – but was Continental’s bankruptcy that much different from the ones the other legacy carriers went through in the 2000s? Some will say that American Airlines and United Airlines “management” treated their labor groups as unjust and unkind as Lorenzo when he forced Continental and Eastern into bankruptcy. Firmly, many believe that if he had not taken over Continental in the 1980s, the airline would have ceased to exist a long time ago. However, many also believe that his leadership at Eastern was a “contributing factor” to their eventual demise. As things went later, had Lorenzo been more focused on discussing, and perhaps less on dictating, could he have salvaged the whole Eastern situation (even though the IAM had already made that an exceedingly unlikely occurrence under any management)? But, then again – was that simply Frank Lorenzo’s style of leadership? Contrary to popular belief, the numerous structural and financial problems facing Eastern Air Lines did not begin with the arrival of Frank Lorenzo. The airline’s economic woes set the stage for endless “civil wars” between leadership and employees (labor groups). It was during one of these endless wars that Frank Borman courted Frank Lorenzo as a means of bludgeoning the unions to take concessions. The situation got out of control quickly, after Lorenzo completed the purchase of Eastern. Many believe that Frank Lorenzo was a legend of his time in the US aviation industry. If he did not have a firm hand against the labor unions – many doubt any of the current legacy airlines would be around today such as United or Continental. In an era when the US airline was struggling (after deregulation) to be competitive because of extremely high operating expenses – including high labor costs; someone had to take the fight to the unions and it just happened to be Frank Lorenzo who had the guts to do it. Former Civil Aeronautics Board (CAB) Commissioner Alfred Kahn commended Lorenzo for taking “the kind of initiative that the CAB sought to encourage” when it deregulated the US airline industry in 1978. On top of this, nearly every airline Lorenzo bought was totally restructured and brought back to life with a “lower cost base” and competitive against other US legacy carriers. Obviously it did not work out with all airlines (Eastern) but in the majority it worked. And yet…. for many – the reality of the situation is that Frank Lorenzo brought a new level of contention and toxicity that up until then had never been experienced in the US airline industry. Here is how one airline blogger characterized Lorenzo: “He nearly destroyed Continental, and drove it into the mess that Gordon Bethune had to come in and clean up. He was a short-sided and extremely petty man driven by his extreme borderline-hate for his unionized workers below him. His legacy will always be tarnished and cast in negative light, and for good reason. The FAA even denied him a certificate to start a new airline in the 1990s. And lest we forget Alvin Feldman, chairman of Continental in 1981, who committed suicide in his LA office after the plan to hold back Lorenzo’s hostile Texas Air disaster fell apart. Frank Lorenzo leaves a legacy of blood, hate, and massive distrust and he will always be remembered for the coward he was. Frank Lorenzo was a shameful and shameless man.”

Even after 30 years, hearing Frank Lorenzo’s name still conjures up strong reactions. To many people, the man who led Continental and Eastern into bankruptcy personifies greediness and brutality in the workplace. A former president of the Air Line Pilots Association publicly tagged Lorenzo as the “embodiment of evil.” But to other observers, Lorenzo is a businessman “worthy of respect.” In their view, Lorenzo was a brilliant financial strategist and an independent thinker who simply had the guts to take harsh measures no other executive dared attempt in the US airline industry. Lorenzo’s real problem, some say, was an unappealing public persona that transformed a tough man into a monster. Granted, Frank Lorenzo was not the most popular person in the history of the airline industry; and was perhaps the most unpopular. But Lorenzo did shape the US airline industry as very few people have done – most notably, being the first airline executive to use bankruptcy to restructure an airline. All in all – Frank Lorenzo was successful in building the world’s largest airline holding company in just 14 years. As you have read – there are many opinions of Frank Lorenzo and what his lasting legacy may/may not have become regarding the US airline industry.

So, let me ask your opinion of this: Is the “hatred” that some have for Frank Lorenzo perhaps misplaced? There are those who agree that Lorenzo deserved the bad reputation for some of the things that he did, but can all of the negativity that surrounded his “leadership” (Texas Air, Continental, and Eastern) be solely pinned on him? Explain.